@techreport{NBERw4179,
title = "Complementarity and Increasing Returns in Intermediate Inputs: A Theoretical and Applied General-Equilibrium Analysis",
author = "Florencio Lopez-de-Silane and James R. Markusen and Thomas F. Rutherford",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "4179",
year = "1992",
month = "October",
doi = {10.3386/w4179},
URL = "http://www.nber.org/papers/w4179",
abstract = {Conventional analysis in the trade-industrial-organization literature suggests that, when a country has some market power over an imported good, some small level of protection must be welfare improving. This is essentially a terms-of-trade argument that is reinforced if the imported goods are substitutes for domestic goods produced with increasing returns to scale, goods that are initially underproduced in free-trade equilibrium. This paper notes that this result may not hold when (1) the imports are intermediates used in a domestic increasing-returns industry, and/or (2) the intermediates are complements for domestic inputs produced with increasing returns. We then demonstrate such an outcome with respect to Mexican protection against imported auto parts using an applied general-equilibrium model of the North American auto industry.},
}